Microfinance and the Diffusion Centrality Principle

It turns out there really is no escaping it. That old saying “it’s all about who you know” applies to the microfinance industry, too. In a paper published last month in the journal Science, researchers from MIT and Stanford University shared findings from a study on the diffusion of information and participation, specifically looking at how enrollment in new microfinance programs is influenced by the social network positions of those who are first told about the program. The study found that an MFI’s initial point-of-contact could have serious implications for a program’s enrollment.

The researchers grounded their study in modeling the diffusion of information and participation through a social network that discriminates between information passing (people must be aware of a program before they can enroll in it) and endorsement (the decisions of those who are aware of a program may be influenced by the decisions of those around them). In order to create such a model, one has to map out, in great detail with lots of data, such a social network. That’s just what the researchers did.

The team spent six months collecting information about the local residents of the study’s site: 43 villages outside of Bangalore, India. They surveyed households about a wide range of interactions – who goes to temple with whom, who asks for advice from whom, who barrows kerosene from whom, etc. – constructing a social network structure. Once this was created, representatives from the participating MFI, Bharatha Swamukti Samsthe, began entering the villages and offering microfinance loans to residents, starting by inviting village “leaders,” teachers, shopkeepers, savings group leaders, etc., to an informational meeting, and afterwards asked them to spread information about the loans.

In the interactions and enrollments that ensued, the researchers estimated the dynamics of the entire diffusion model, which proved accurate in witnessing the villages’ enrollments over time. The model then yielded a measure of the potency for any given person within the social network to be the MFI’s first point-of-contact regarding new program enrollment. The researchers called this measure of potency, or social influence, “diffusion centrality.” Diffusion centrality, which can be applied to any given position in a social network, incorporates variables like how many friends an individual has, as well as how well connected an individual is to other well-connected individuals.

The study’s results showed that depending on who was the initial point-of-contact, participation in the microfinance program varied from about 7 percent to 44 percent. One of the study’s researchers, Matthew Jackson of Stanford, described, “In villages where they contacted very central people, they ended up with high participation, while in villages where they contacted less central people they ended up with low participation.” Participation in loan programs increased by roughly 11 percent when well-connected individuals were contacted first. As compared to non-participants, individuals who became program participants were seven times more likely to pass along program information to other individuals. The study also found that informed individuals make relatively independent decisions, as they are not more likely to participate in the program if their informed friends participate.

For someone who works in communications and marketing, my initial question is on the prevalence of advertising efforts across various mediums throughout the microfinance industry that already adopt this approach. If you happen to know of any aligning efforts, please feel free to contribute them in the comments section. For a closer look at the study, head over to the Science website.

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